Guest blogger: Best practices for accounts receivable management

If cash is king, then he or she who handles your customer payment collections must be queen, right?

How you manage your accounts receivable process is critical from start to finish. In this two-part blog post, we’ll tackle two areas of the AR process from an expert’s point of view. Please welcome Sepideh Behram, whose revenue recovery agency, Ignite Revenue, Inc., is dedicated to supporting businesses in managing their delinquent accounts receivables to create an efficient and effective cash flow process.

Small business owners often wear a multitude of hats, based on what’s essential on any given day. Managing accounts receivable is not always top-of-mind for those responsible for a business’s daily operations, and it’s easy to overlook this essential component or let it lapse until the day when an owner has time to face the reality of the delinquency and figure out a strategic approach. Being well prepared with adequate information before an invoice becomes delinquent will help you set the stage for prompt and precise AR implementation. Follow these three rules to simplify your AR process:

Know Your Client
Collect as much client information as possible in advance, including:

• Corporate name, doing business as designations and the individual’s full first, middle and last name. You can verify this information against a driver’s license or corporate name filing.
• For commercial clients, how long have they been in business?
• How often will the client use your services?
• Is the client providing you with specific or general contact information? (i.e. a Gmail or Yahoo! email address vs. corporate email address; main office number vs. direct line or cell phone number).
• Have you captured your client’s date-of-birth, social security number/employer identification number or driver’s license number?

Invoicing Dos and Don’ts
More than likely, an invoice is the first communication clients receive from you since you provided them a service. It is imperative that you clearly define the work performed, the invoice balance, and when the payment is due. This allows you to set expectations and lay the foundation for possible collection activity if an invoice becomes past due. Your invoice should also contain other important information for your clients, such as:

• Your main point-of-contact with specific contact information.
• A specific remittance due date (don’t just indicate 30 days).
• Any post-30-day late fees or interest you will charge. Be sure to include these terms in any estimates or contracts the client signs.

Communicate, Communicate, Communicate
Did I mention communicate?! Imagine it’s day 31 and you have no payment in hand. What are your next steps? It’s time to use the information you gathered to implement follow-up communication efforts:

• For a 30-day invoice, you should generally follow up at 45, 60, 75 and 90 days. 
• Each of these communication points should reiterate the tardiness of the payment and incorporate the late fees or interest charges.
• Take note of any address, phone or email changes that have occurred. Determine if the person or business is still at the same location or if any of the information originally provided has changed.
• Consider placing accounts older than 90 days with a collection agency. Agencies often work on a contingency basis and do not charge you if no portions of the account are collected. This relieves you and your staff from setting up an internal collection process, thereby increasing overhead.  

The key throughout your client relationship cycle is to remain in contact with clear and consistent communication. Reach out to your clients after you provide a service, learn what is going on with them financially and personally, and ensure that they were pleased with your services. Remember, you’ve put in significant efforts to build a brand and reputation — don’t let collection efforts taint your customer relationships.

Stay tuned to part two of this discussion to see what you can do to manage those pesky old accounts.

Blog contributed by Sepideh Behram, results@IgniteRevenue.com, www.igniterevenue.com